Note 3 – Cash and Cash Equivalents and Investments

The Company’s cash equivalents consist primarily of investments in money market funds as follows (in thousands):



	June 29, 2013		March 30, 2013
Cash	$	3,455	$	2,938
Cash equivalents:
Money market funds		25,729		13,476
Total cash and cash equivalents	$	29,184	$	16,414

The Company’s portfolio of short-term and long-term investments is as follows (in thousands):



	June 29, 2013
		Amortized		Unrealized		Unrealized		Carrying
		Cost		Gain		Loss		Value
Short-term investments:
Trading securities:
Equity mutual funds related to NQDCP	$	9,685	$	-	$	-	$	9,685
Available-for-sale securities:
Municipal bonds		82,590		62		(254)		82,398
Corporate bonds		26,547		43		(196)		26,394
Certificates of deposits		6,478		3		-		6,481
Commercial papers		1,498		-		-		1,498
Total short-term investments	$	126,798	$	108	$	(450)	$	126,456

Long-term investments:
ARS available-for sale securities	$	2,100	$	-	$	(200)	$	1,900

	March 30, 2013
		Amortized		Unrealized		Unrealized		Carrying
		Cost		Gain		Loss		Value
Short-term investments:
Trading securities:
Equity mutual funds related to NQDCP	$	9,673	$	-	$	-	$	9,673
Available-for-sale securities:
Municipal bonds		58,524		156		(22)		58,658
Corporate bonds		25,667		161		(3)		25,825
Government agency bonds		16,106		82		(1)		16,187
Certificates of deposits		7,758		5		(4)		7,759
Commercial Papers		5,743		2		-		5,745
Total short-term investments	$	123,471	$	406	$	(30)	$	123,847

Long-term investments:
ARS available-for sale securities	$	15,050	$	-	$	(1,250)	$	13,800

The Company’s short-term and long-term investments by contractual maturity are as follows (in thousands):



	June 29, 2013		March 30, 2013
Short-term investment:
Trading securities:
Due in one year or less	$	9,685	$	9,673
Available-for-sale securities:
Due in 12 months or less		32,590		45,190
Due in 12 to 24 months		38,518		23,019
Due in 24 to 36 months		29,556		32,345
Due in 36 to 49 months		16,107		13,620
Total short-term investments	$	126,456	$	123,847
Long-term investment:
Available-for-sale securities at fair value:
Due after ten years	$	1,900	$	13,800
Total long-term investments	$	1,900	$	13,800

Short-term investments classified as trading securities consisted entirely of investments in mutual funds held by the Company’s NQDCP. Unrealized gains (losses) on trading securities are recorded in the Condensed Consolidated Statements of Income. Unrealized losses on trading securities were $19,000 for the three months ended June 29, 2013 compared to $97,000 for the same period of the prior fiscal year.

The Company’s available-for-sale portfolio as of June 29, 2013 was comprised of municipal bonds, corporate bonds, commercial paper, certificates of deposits and ARS. Unrealized gains (losses) on available-for-sale securities are recorded in other comprehensive income (loss) as increases (declines) in fair values and are considered to be temporary.

Realized gains (losses) on the sale of available-for-sale securities are determined by the specific identification method and are reflected in the interest income line item on the condensed consolidated statements of income. During the three months ended June 29, 2013, the Company disposed of short-term available-for-sale securities totaling $50,012,000 compared to $25,765,000 for the same period of the prior fiscal year. The net realized gain of these transactions was $152,000 for the three months ended June 29, 2013. For the three months ended June 30, 2012, such gain was immaterial.

The Company’s ARS has a contractual maturity of 24 years. This security is in the form of auction rate bonds whose interest rate had historically been reset every thirty-five days through an auction process. At the end of each reset period, investors could sell or continue to hold the security at par. This ARS held by the Company is backed by pools of student loans and is primarily guaranteed by the U.S. Department of Education, although the credit rating of this ARS with a par value of $2,100,000 was reduced from AAA to AAA with a negative outlook by Fitch in May 2013.

The ARS with a par value of $2,100,000, whose carrying value was $1,900,000, was classified as a non-current asset and was presented as a long-term investment on the Company’s balance sheet as of June 29, 2013.

The Company has concluded that the decline in fair value of the ARS investment as of June 29, 2013 is considered to be temporary in part due to the following:

·	this ARS is of investment grade credit quality and a significant portion of it is collateralized and guaranteed by the U.S. Department of Education;

·	as of June 29, 2013, there had been no defaults on the ARS held by the Company;

·	the credit rating of this ARS was downgraded from AAA to AAA with a negative outlook by Fitch in May 2013, however, it is still considered to be investment grade. There has been no change of credit rating subsequent to June 29, 2013.

·	the Company has the intent and ability to hold this investment until the anticipated recovery in market value occurs or it is redeemed at par value; and

to the extent the Company’s other investments in ARS have been redeemed, they were all redeemed at par value. The Company received ARS redemptions of $13,000,000, $4,700,000 and $36,450,000, all at par value in fiscal years 2013, 2012 and 2011, respectively. Additionally, during the three months ended June 29, 2013, one of its ARS was fully redeemed and the other, which is currently held, was partially redeemed at par value with a combined total of $12,950,000.

If uncertainties in the credit and capital markets continue or these markets deteriorate further, the Company may incur additional temporary impairment to its ARS holding. The Company will continue to monitor its ARS holding and may be required to record an impairment charge through the income statement if the decline in fair value is determined to be other-than-temporary or the credit quality of its ARS holding declines further.

During the quarter ended December 29, 2012, the Company loaned $300,000 under a convertible promissory note to a private startup company developing products based on a new technology. This private startup company uses the Company's ICs for its prototype systems. Sales to date have not been material for the Company. This loan was recorded as a long term asset as of June 29, 2013. This unsecured loan accrues simple interest at a 5% annual rate with principal and accrued interest convertible at the option of the Company to preferred stock at a discount and the loan matures on December 31, 2013. The conversion feature is automatic if the private company raises $4,000,000 of additional capital, including the note, prior to December 31, 2013. The Company also has the option to invest an additional $1,700,000 in that startup company's stock in the event of certain equity financings. The Company did not own any stock in the private company as of June 29, 2013. The Company expects the note to be either automatically or voluntarily converted to preferred stock on or prior to maturity and therefore it is categorized as a long-term asset.